Gold slips on the fear that the US-China trade war will escalate

Bengaluru — Gold prices edged lower on Wednesday as a key technical resistance acted as a deterrent for the metal and the yuan weakened against the dollar on the fear the US-China trade war could escalate.

Spot gold was down 0.3% at $1,194.08% at 4.06am GMT, after hitting its lowest since August 24 at $1,187.21 on Tuesday.

US gold futures were down 0.3% at $1,198.90/oz.

"There is some selling pressure on the renminbi, which is affecting gold. Also, people are reluctant to buy as $1,200 is acting as a strong resistance," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers, Hong Kong.

Verbal sparring between Washington and Beijing continued on Tuesday, unnerving investors over the months-long escalation in trade tensions between the world’s two biggest economies.

The trade conflict has prompted investors to buy the dollar in the belief that the US has less to lose from the dispute. This has also weakened the yuan, making gold expensive in the world’s biggest consumer, China.

Gold has been stuck in a $20 price range over the past two weeks, with investors looking for technical breakouts for clues on further movements.

"It seems the sideways price action will persist ahead of the Federal Reserve interest rate decision," said David Song, a currency analyst at DailyFX, adding a hawkish rate-hike from the Fed was likely to reinforce a long-term bearish outlook for gold.

The US central bank is widely expected to raise the benchmark interest rate at its September meeting and expectations are growing for one more hike in December on the back of positive economic data.

Higher rates increase bond yields, making non-yielding bullion less attractive, and tend to boost the dollar.

"Gold remains vulnerable to further losses as the inverse relationship between the precious metal and the greenback continues to materialise and our client sentiment report shows retail traders are still long on bullion," Song said.

Spot gold may retest a support at $1,188/oz, said Reuters technical analyst Wang Tao.

Among other precious metals, spot silver was nearly flat at $14.09/oz, having hit its lowest since January 2016 at $13.90 in the previous session.

Platinum gained 0.1% to $788.40/oz, while palladium lost 0.4% to $970.75.